Kraft-Cadbury outcome could shuffle confectionary world order

(Crain's) -- Cadbury is the chess piece that could determine who leads the world's confectionery market, depending on whose hands the company ends up in.

If it lands in the portfolio of Kraft Foods Inc., that marketer would topple Mars from its perch as the globe's leading confectioner, a status Mars assumed after winning control of Wrigley last year. But now, Ferraro has confirmed an interest in acquiring Cadbury, and The Wall Street Journal reported that it is considering a linkup with Hershey to do the job. That trio would dwarf Mars even more than a Kraft/Cadbury combo. According to Euromonitor, Mars had 14.5% of the $167 billion confectionary market in 2008 and Kraft/Cadbury would eclipse that with a combined 15% share. A Cadbury/Ferraro/Hershey matchup, however, would trump them all, yielding a player with 19.3% of the world's confectionery market, Euromonitor figures show.

Of course, it's far from clear how -- and even whether -- a Hershey/Ferraro collaboration to take over Cadbury would work, and which Cadbury brands would be assumed by which partner. It's also unclear what such a combination would mean for marketing. Kraft is a big-time marketer and an accessible public company; Hershey is also public, but controlled by a family trust; and Ferrero is a closely-held Italian company that's long avoided media scrutiny.

Hershey and Cadbury have similar measured-media spending outlays in the U.S., according to TNS Media Intelligence. During 2008, Hershey spent $151 million, while Cadbury spent $134 million. Last year, Cadbury focused most of its spending on bigger brands Trident and Stride, each $40 million or more, while Hershey spread its dollars more evenly across its portfolio, with about $33 million spent on Hershey chocolate, $24 million on Hershey's Bliss, and $22 million on Ice Breakers gum and mints.

Big change in numbers expected

The data is likely to shift dramatically in 2009, though, as Hershey has committed to big increases in spending and said that Kisses and Reese's have responded to increased support this year. Hershey has also brought Twizzlers and Kit Kat back to TV after a five-year hiatus, which will likely upset overall spending by brand. ArnoldNYC handles Hershey's confectionary creative while Cadbury's big brands are with JWT and McCann Erickson New York. Things would be less likely to change with Hershey in the driver's seat, as the company already licenses Cadbury products in the U.S.

Ferrero, a closely held, Italian-based company, is more of a mystery. The company, though it has said it is reviewing its options for a bid, did not immediately return a call, and the names of its U.S. advertising agencies weren't immediately available. According to TNS Media Intelligence, Ferrero spent about $35 million in measured media during 2008, focusing heavily on Ferrero Rocher, its Roudnoir dark chocolates and Tic Tacs. The company does limited support of cult favorite Nutella inside the U.S., relying heavily on word-of-mouth.

In a research note, Credit Suisse analyst Robert Moskow sought to tamp down enthusiasm for Hershey as a buyer. "Given Hershey's size relative to Cadbury, bidding for Cadbury is a big task," he wrote. "Any deal would probably therefore need a third party." The most popular combination, he added, is the additional prospect that Hershey could buy Cadbury's chocolate, while Nestle buys the gum brands.

Regarding the prospect of Hershey teaming up with Ferrero, Mr. Moskow cautioned, "It strikes us that any deal involving Hershey and Ferrero would be complicated -- there is no obvious way to split the assets, as for the most part both companies could feasibly want any part of Cadbury."

Of particular concern is the likelihood that both buyers are more interested in Cadbury's gum than its chocolate. Hershey has been looking to build an international presence because the U.S. chocolate market is extremely mature. Access to the fast-growing gum portion of Cadbury's portfolio would likely aid it in that effort. "The problem is that Ferrero might want this part of Cadbury for the same reasons," Mr. Moskow wrote.

(This story originally appeared on the Web site of Crain's sister publication Advertising Age.)

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